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CROWD POWER: Can the Crowd Close the Financing Gap

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CROWD POWER: Can the Crowd Close the Financing Gap CROWD POWER Can the Crowd Close the Financing Gap? Davinia Cogan and Simon Collings 1 CONTENTS 1.0 Executive Summary ...................................................................................................................................3 2.0 Introduction ....................................................................................................................................................4 3.0 Market Update: 2016 Snapshot ...........................................................................................................5 4.0 Role of Crowdfunding ............................................................................................................................. 8 4.1 Donation Campaigns ..............................................................................................................................................................9 4.2 Reward Campaigns ...............................................................................................................................................................14 4.3 Debt Campaigns ......................................................................................................................................................................21 4.4 Equity Campaigns .................................................................................................................................................................30 5.0 Crowd Power Progress ..........................................................................................................................35 6.0 Risk Analysis ...............................................................................................................................................39 7.0 Conclusion ...................................................................................................................................................43 Notes on Data Sources .................................................................................................................................44 This material has been funded by UK aid from the UK government; however the views expressed do not necessarily reflect the UK government’s official policies. Published July 2017 Design: www.dougdawson.co.uk 2 EXECUTIVE 1.0 SUMMARY Crowdfunding for energy access related projects and off-grid energy businesses grew from $3.4 million in 2015 to $8.7 million in 2016. Debt and equity campaigns accounted for more than 90% of the market; and raised 53% and 39% respectively. While crowdfunding for energy access is a small component of overall fundraising for off-grid energy companies operating in Sub-Saharan Africa and Asia, we have found that various forms of crowdfunding have a role to play at this juncture. We believe the growth of energy access related crowdfunding over 2016, particularly debt crowdfunding, signals the increasing role of crowdfunding for companies trying to close the financing gap. This report highlights fundraising trends across donation, reward, debt, and equity crowdfunding; and shows how non-profits and social enterprises are utilising crowdfunding to close the financing gap experienced by many early stage companies, and non-profits. Energy access related donation, debt, and equity crowdfunding grew steadily in 2016; while reward crowdfunding activity declined. The Crowd Power programme, which this report shares learnings from, contributed a total of $250,000 across 16 energy access related campaigns in 2016, which in turn raised $1.5 million for projects expected to provide 62,500 people with energy access. Donation campaigns continue to be an important part of the overall crowdfunding market for and in Africa, making up 17% of crowdfunding on the continent. Yet energy access related campaigns appear to be underrepresented. Donation crowdfunding accounts for only 3.5% of all energy access related crowdfunding, and is dominated by micro-donations. Donation crowdfunding for start-ups raising seed capital is starting to emerge, and may be an area of growth. In 2016, the amount raised on reward platforms was down 40% on the previous year. Reward campaigns tend to be infrequent, with a variation in the amount raised, and success depends greatly on the network of the business or non-profit raising funds. While larger, high profile campaigns get much of the attention, it is likely the smaller campaigns (<$50,000), by start-ups raising seed capital from their networks, that will continue to grow steadily over the coming years. Debt crowdfunding appears to demonstrate the most promising and sustained growth of all energy access related crowdfunding activity. Although debt crowdfunding was previously dominated by zero-interest (to lender) microloans, interest-bearing working capital loans grew significantly in 2016. They now account for almost half of all energy access related debt crowdfunding, while they accounted for less than 10% of debt crowdfunding in 2015. Energy access related equity crowdfunding grew exponentially over the year, following three large transactions, averaging $1.1 million. This growth is encouraging, and demonstrates the potential of equity crowdfunding, however much work needs to be done across the ecosystem – from building a strong investment pipeline to working with regulators to bolster investor confidence and platform growth – to ensure sustained growth and capital access for earlier stage companies working in off-grid energy access. 3 2.0 INTRODUCTION Crowd Power: Can the Crowd Close the The subsequent section provides an overview Financing Gap? is the second report in a of Crowd Power activities and achievements. The report concludes with an analysis of risks to series of research on crowdfunding for campaign-backers, campaign-makers, and the donor energy access in Sub-Saharan Africa and community. The purpose of this report is to provide Asia. It examines the role of crowdfunding guidance to funders looking at how best to engage in closing the financing gap experienced with crowdfunding, and to share the lessons we have by businesses and non-profits providing learned so far. It is also to help social enterprises and non-profits looking to raise funds from the crowd, and products and services to off-grid to inform platforms looking to enter new markets. communities. It is worth noting that data on energy access The report begins with an update on market data crowdfunding, and crowdfunding in general, is and key trends across the energy access related limited and that there is not one comprehensive crowdfunding space. The bulk of the report examines data source. We have used available industry data how donation, reward, debt, and equity campaigns from the Cambridge Centre for Alternative Finance, are used by social enterprises and non-profits. We Crowdsurfer, and data collected by Energy 4 Impact, analyse key trends across the four different campaign which includes data from our platform partners – Kiva, types, consider the impact of various campaigns, Bettervest, Indiegogo, Lendahand, GlobalGiving, and explore the role of crowdfunding in the context Trine, Crowdcube, Pozible, and M-Changa. Other of organisational and sector-wide financing needs. data referred to was obtained from various social We have also identified opportunities for scaling up enterprises and non-profits launching campaigns, support to the energy access crowdfunding space. and through our work supporting off-grid energy businesses on the ground in Kenya, Tanzania, Rwanda, Uganda, and Senegal. It is important to note that while the data captured here does include relevant projects in Asia, our understanding of energy crowdfunding in Asia is not as comprehensive as our understanding of the African market. 4 MARKET UPDATE 3.0 2016 SNAPSHOT All data in this section is Energy 4 Impact and Crowdsurfer aggregate data, 2016, see Notes on Data Sources. Top 10 Countries for Energy Access Crowdfunding 2016 Mali Campaigns: 1 Raised: $385,000 Main platform: Bettervest 3 Hondurats Phillipines Campaigns: 1 Campaigns: 188 Raised: $111,000 Raised: $153,100 Main platform: Lendahand Main platform: Kiva 7 9 10 Mexico 8 Campaigns: 232 Raised: $92,500 India Main platform: Kiva Campaigns: 72 2 Raised: $142,100 4 Main platform: Kiva 6 Ghana Cambodia Nicaragua Campaigns: 3 Campaigns: 349 Campaigns: 241 Raised: $435,000 Raised: $227,000 Raised: $160,100 Main platform:Bettervest 1 Main platform: Kiva Main platform: Kiva Kenya Campaigns: 2000+ 5 Raised: $1,800,000 Zambia Main platform: Kiva Campaigns: 16 Raised: $172,411 Main platform: Trine In 2016, energy access focused projects and to lead and accounted for 53% of all crowd-sourced businesses raised $8.7 million, growing 156% since funds for off-grid energy related campaigns. Donation the previous year. The biggest shift was in equity campaigns accounted for only 3.5% of all funds raised, crowdfunding, which grew from around $75,000 in but grew 45% over the year. Reward campaigns also 2015 to over $3.4 million in 2016 – the total of all off- accounted for 3.5% of the market, but the total amount grid energy campaigns in 2015. Debt, which was the of funds raised were down 40% on the previous year. dominant mode of crowdfunding in 2015, continued 5 Crowdfunding for Energy Access by Type 2015 – 2016 Donation 7% Equity 2% Equity 39% Reward 16% 2016 2015 $8.7 million $3.4$8.7 millionmillion Donation 4% Debt 75% Reward 4% Debt 53% Globally, the dominant platform in energy access raising over $1 billion in loans on the platform since crowdfunding remains
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